The Chained CPI Explained
One option on the table that has great potential to be included in a final deal is the chained CPI. As we explain in our updated paper on the chained CPI, "Measuring Up," the current CPI overstates inflation because it doesn't account for substitution between different categories as relative prices change. Today, Marc Goldwein, CRFB's Senior Policy Director, further explained this policy in a CNN radio interview using the example of ham and turkey sandwiches. You can listen below:
The story focuses on its application to Social Security, but it is worth noting that the chained CPI would also affect the tax code and other spending that involves cost-of-living-adjustments (COLAs).
Goldwein also appeared in a WBAA public radio piece about the chained CPI. Similar to the CNN piece, he discusses how the chained CPI's methodology would be an improvement over the current CPI and describes its effect on the budget. He also points out that the chained CPI would phase in gradually, so it would have the benefit of not reducing deficits too quickly.
Despite critics claiming that it would hurt the vulernable, we have shown that on average chained CPI would be distributionally neutral. Any particularly vulnerable group that would be hurt by chained CPI -- for example, seniors that collect Social Security for a long period of time -- could be helped with other policy changes like, in this case, a benefit bump-up after collecting benefits for twenty years. This is preferable to continuing to use a less accurate measure of inflation for everyone.
The chained CPI may be one of the easier options on the table right now, and it should definitely be included in the discussion. For more information on the measure, check out our updated report.
UPDATE: This blog has been updated to talk about Goldwein's also recent appearance in a WBAA public radio piece talking about the chained CPI.